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If an insurance company insured 100,000 cars across the state against theft, which of
the following would NOT be true?
A) The insurance company would be fairly certain of the number of cars that will be
stolen.
B) The insurance company would be pooling risks.
C) The insurance company would know with a fair amount of certainty the expected
payoff on the insurance policies.
D) The insurance company must assume that very few cars will be stolen.
(Table: Optimal Choice of Milk and Honey) Look at the table Optimal Choice of Milk
and Honey. The price of milk is $2 per gallon, and the price of honey is $4 per jar. Hal's
income is $16. Assuming that Hal spends all of his income on honey and milk, if he
buys 2 jars of honey, he can buy _____ gallons of milk.
A) 4
B) 3
C) 2
D) 1
Children raised in poverty are more likely to live in poverty as adults than are other
children, because low income is highly correlated with higher:
A) high school dropout rates.
B) risk of mental problems and behavioral disorders.
C) rates of illness and hospitalization.
D) high school dropout rates, risk of mental problems and behavioral disorders, and
rates of illness and hospitalization.
If a firm faces a downward-sloping demand curve, it will ensure that:
A) P = ATC.
B) P > MR.
C) P < MC.
D) P = MC.
Figure: The Quantity of Pollution
(Figure: The Quantity of Pollution) Look at the table The Quantity of Pollution. When
this economy produces 50 tons of emissions, it:
A) is producing below its socially optimal level of production.
B) finds that the marginal social cost is greater than the marginal social benefit.
C) is not recognizing the marginal private benefits or costs.
D) is producing at its socially optimal level of production.
The owner of the Dismal Philosopher, one of five bookstores on College Road, asks
you to make a graph showing each College Road bookstore's share of all five stores'
book purchases. The best way to show this information is with:
A) a scatter diagram.
B) a pie chart.
C) a time-series graph.
D) an independent graph.
Fire insurance policies include deductibles:
A) because when it comes to fire, most people are risk-averse.
B) because it is too expensive to fully insure something against fire.
C) to minimize moral hazard.
D) to minimize adverse selection.
(Table: Marginal Utility per Dollar II) Look at the table Marginal Utility per Dollar II.
If Manuel has $18 to spend on potatoes and clams, then the utility-maximizing
combination is _____ pounds of clams and _____ pounds of potatoes.
A) 5; 3
B) 4; 6
C) 1; 6
D) 3; 9
Figure: Cold Drinks Sold and Temperature
(Figure: Cold Drinks Sold and Temperature)
Look at the figure Cold Drinks Sold and Temperature. If we move from point C to point
E in the figure, the outside temperature has ______ degrees and the number of cold
drinks sold has ______.
A) decreased by 30; decreased by 30
B) increased by 20; increased by 20
C) increased by 30; increased by 30
D) increased by 40; increased by 40
When a person receives more education, his or her _____ has increased. When a firm
buys a new copy machine, it has purchased _____.
A) human capital; physical capital
B) labor; capital labor
C) labor; capital
D) human capital; land
If some firms in a perfectly competitive industry are earning positive economic profits,
then in the long run, the:
A) industry is in equilibrium.
B) short-run industry supply curve will shift to the right.
C) number of firms in the industry will not change.
D) number of firms in the industry will decrease.
The marginal rate of substitution assumes that:
A) prices remain unchanged.
B) money income remains unchanged.
C) total utility remains unchanged.
D) the quantities of both goods remain unchanged.
Mark and Rasheed are at the bookstore buying new calculators for the semester. Mark is
willing to pay $75 and Rasheed is willing to pay $100 for a graphing calculator. The
price for a calculator at the bookstore is $65. How much is Mark's individual consumer
surplus?
A) $10
B) $25
C) $35
D) $75
At quantities greater than the long-run minimum cost per unit of output, the long-run
average total cost curve is _____ of the corresponding short-run average total cost
curve.
A) tangent to the minimum
B) tangent to the maximum
C) to the right of the minimum
D) to the left of the minimum
(Table: Production Possibilities) Look at the table Production Possibilities. The
opportunity cost of 1 computer for _____ is _____.
A) the United States; 2
B) Colombia; 0.5
C) the United States; 0.5
D) Colombia; 1
Which of the following influences does NOT shift the supply curve?
A) people deciding that they want to buy more of the product
B) a decrease in the price firms expect to receive in the future
C) a rise in the wages paid to workers
D) the development of a new production technology
In terms of indifference curves, an increase in total utility is represented by a _____
indifference curve.
A) shift to the right to a higher
B) shift to the left to a lower
C) movement upward along an
D) movement downward along an
Mr. Black always consumes coffee and cream in fixed proportions8 ounces of coffee to
1 ounce of cream. This implies that for Mr. Black:
A) coffee and cream are perfect substitutes.
B) the indifference curves for coffee and cream are tangent.
C) 8 ounces of coffee and 2 ounces of cream yields more utility than 8 ounces of coffee
and 1 ounce of cream.
D) coffee and cream are perfect complements.
(Table: Costs of Birthday Cakes) Look at the table Costs of Birthday Cakes. Assume
that fixed costs are $10. What is the marginal cost of the second cake?
A) $5
B) $10
C) $25
D) $35
Scenario: Ben and Nick
Ben and Nick are the only members of a community. They have revealed the marginal
private benefits they each receive from a public good whose marginal social benefit is
known. In addition, the marginal social cost (MSC) of the public good is known and is
constant.
(Scenario: Ben and Nick) Look at the figure and scenario Ben and Nick. Q4:
A) is the socially optimal level of provision of the public good.
B) is equal to P4 + P3 in marginal social benefits.
C) represents an amount at which the MSB is greater than the MSC.
D) will not be produced, since neither Ben nor Nick finds any benefit in it at this level.
In the long run, each firm in a perfectly competitive industry will:
A) earn only enough to cover the opportunity costs of the resources used in production.
B) produce where MR is greater than MC.
C) differentiate its goods.
D) increase its price.
A Japanese steel firm sells steel in the United States and in Japan. Since the United
States buys steel from a number of sources, the U.S. demand for Japanese steel is more
price-elastic than the Japanese demand for Japanese steel. If the Japanese steel firm
wishes to maximize its profits, it should:
A) charge the same price in both countries (after adjusting for transportation costs).
B) charge a higher price in the United States and a lower price in Japan; otherwise it
would be accused of unfair trade practices.
C) charge a lower price in the United States and a higher price in Japan.
D) figure out which market is more profitable and sell only in that market.
The government can intervene to avoid overfishing by:
A) assigning property rights.
B) imposing a tax on usage.
C) granting a limited number of tradable fishing permits.
D) assigning property rights, imposing a tax on usage, and/or granting a limited number
of tradable fishing permits.
In the local market for coffee, if Joyce's Java and Everyday Joe's coffee shops go out of
business, the _____ curve shifts to the _____.
A) supply; right
B) demand; left
C) supply; left
D) demand; right
Economists define an efficient use of resources as a situation in which:
A) one person can be made better off but only by making another person worse off.
B) all persons can be made better off without making anyone worse off.
C) all persons receive an equal share of the resources.
D) all persons are made worse off when one person is made better off.
Scenario: Used Car Market
In the used car market, cars of poor quality are called lemons, while cars of good
quality are plums. Suppose the probability of obtaining a lemon is 60% and the
probability of obtaining a plum is 40%. Also assume a plum is worth $15,000 and a
lemon is worth $3,000.
(Scenario: Used Car Market) Look at the scenario Used Car Market. If buyers cannot
distinguish between lemons and plums, eventually this used car market will:
A) be made up mostly of lemons.
B) have buyers who will have a 50% chance of choosing a plum.
C) be made up mostly of plums.
D) be made up of 50% plums and 50% lemons.
If a nation's Gini coefficient is rising over time, it is an indicator of:
A) an increase in the poverty rate.
B) a decrease in the poverty rate.
C) an increase in income inequality.
D) a decrease in income inequality.
Figure: The Market for Laptop Sleeves
(Figure: The Market for Laptop Sleeves) Look at the figure The Market for Laptop
Sleeves. Assume that S and D are the domestic supply and demand curves and the
world price is PW. Identify the area of deadweight loss when a tariff raises the domestic
price from the world price to PT.
A) A + B
B) C + D + E + F
C) D + E + F
D) D + F
